An overview of the principles and practices of lean manufacturing.

1. Background Slides on Lean Manufacturing and The Toyota Product Development System John Cleveland [email_address] www.in4c.net

5. TPS As A Self-Organizing System A number of writers have noted that the underlying logic of the Toyota Production System is consistent with the principles of self-organizing natural systems. The science of complex adaptive systems theory studies the characteristics of natural systems and how they are structured to be able to evolve, grow and adapt. Systems that have the capacity for growth and adaptation live “on the edge of chaos” with enough structure to stay together and evolve, but enough flexibility to respond to new circumstances. These systems share a common set of characteristics, including: Autonomous Agents -- Diverse collections of independent agents who use simple rules to make decisions based on information in their immediate environment. (In the TPS, these “agents” are associates and teams and the “simple rules” are the core tenets of TPS articulated on the previous page.) Networked Structures -- Moderately dense and flexible connections between “agents” that allow them to communicate and create larger structures, but also to rapidly reorganize. (In the TPS, these network structures are the internal customer-supplier relationships that dictate the flow of value added.) Profuse Experimentation – Continuous experimentation with novel arrangements, and the rapid exploitation of solutions when one is found . (In the TPS, this is the scientific method that workers and teams use to continuously experiment with new processes and methods. Self-organizing systems are “emergent” systems – the over-arching structure emerges from the interactions of the agents in the system, and is not imposed from the top down. A flock of birds, for instance, is able to move fluidly and coherently as a whole, without anyone serving as the “flock CEO” or “flock manager.” The structure and dynamics of the flock emerge from the interaction of the birds, which are governed by a relatively simple set of rules. (Scientists have determined that it takes no more than three simple rules of behavior for birds to form a flock: 1) match the velocity of your neighbor; 2) maintain a minimum distance; and 3) move to the center.) In a system like TPS, all the information needed to “manage” the system is embedded in the local transactions between the agents in the system. There is not any need for outside monitoring and control – the system controls itself. “ Indeed, everything that decides how efficiently and effectively material, people and other resources are consumed inside the plant is determined by how well everyone inside the plant masters and applies the practices of TPS in a continuous flow setting…No accounting information compiled during the period can help the managers and workers in the plant achieve, or improve, that outcome. The only things that will insure proper costs are mastery and maintenance of TPS: perform every step according to the established takt time; follow standard work procedures; recognize abnormal conditions and stop to current them when they occur; work only in response to a customer order; space varieties over the shift as evenly as possible, and so forth. Do those things properly, and cost takes care of itself.” (Johnson & Broms, Profit Beyond Measure , p. 108)

6. Lean As A Business Philosophy, Not Tools Many American and European companies fail to understand the essence of the Toyota Production System as a business philosophy, a set of values, and a culture . The focus is too often on the techniques and tools with the underlying essence of the innovation lost. Jeffrey Liker has been a long-term student of the Toyota production system, and a leading author on lean practices in the U.S. His recent book, The Toyota Way , reinforces the idea that the essence of the TPS is a mindset that embraces continuous improvement and the development of the capacity of employees and partners. “ Despite the huge influence of the lean movement, I hope to show in this book that most attempts to implement lean have been fairly superficial. The reason is that most companies have focused too heavily on tools such as 5S and just-in-time, without understanding lean as an entire system that must permeate an organization’s culture. In most companies where lean is implemented, senior management is not involved in the day-to-day operations and continuous improvement that are part of lean. Toyota’s approach is very different.” “ I learned that all the supporting tools of lean such as quick equipment changeovers, standardized work, pull systems, and error proofing, were all essential to creating flow. But along the way, experienced leaders within Toyota kept telling me that these tools and techniques were not the key to TPS. Rather the power behind TPS is a company’s management commitment to continuously invest in its people and promote a culture of continuous improvement.” (Jeffrey Liker, The Toyota Way , P. 7-10)

9. Lean vs. Mass Production on the Shop Floor Raw Material Step 1 Step 1 Step 1 Inventory Step 2 Step 2 Step 2 Inventory Step 3 Step 3 Step 3 Inventory Step 4 Step 4 Step 4 Inventory Finished Goods Step 5 Step 5 Step 5 Step 1 Step 2 Step 3 Step 4 Step 5 Raw Material Finished Goods Step 1 Step 2 Step 3 Step 4 Step 5 Raw Material Finished Goods

10. Lean vs. Economies of Scale & Excess Capacity One of the less-well understood ways in which lean manufacturing transforms the logic of cost management is in its approach to economies of scale and excess capacity. Traditional manufacturing designs production systems for high volume, low variety manufacturing. This kind of production tends to favor large, dedicated machines and other fixed costs. A high fixed to variable cost ratio in turn favors over-production in order to reduce the marginal costs of each additional unit produced. In traditional manufacturing companies, excess capacity is “allocated” to current product lines in order to “full absorb” all overhead. This, of course, grossly distorts the actual cost of producing products, since the unused capacity is unrelated to a specific product. A core principle of TPS and other lean manufacturing systems is to match production capacity to customer demand (embodied in “takt” time, or the pace of production that exactly matches required delivery schedules). Excess capacity or worse, excess production, are treated as serious wastes to be avoided at all costs. This philosophy seeks to achieve the same product costs regardless of volumes, thereby eliminating the entire concept of ‘economies of scale.’ This, in turn, leads to the design of small, flexible production units with smaller, flexible machinery that can be rapidly adapted and reconfigured. As high a variable to fixed cost ratio as possible is sought. This enables a company to be profitable during a downturn in sales, as well as during a growth period. Critical to this concept of “right-sizing” of production capabilities to meet demand, is the elimination of large ‘tombstone’ machinery – dedicated capacity such as heat treating, painting, washing and other common processing equipment. A continuous struggle in lean enterprises is the elimination of these constraints and bottle neck through the design of new manufacturing processes and equipment innovations. “ Adding the cost of excess capacity to a product line can greatly distort actual costs, leading to inaccurate information, and in turn, poor decision-making. Whether excess capacity exists or not should have nothing to do with the costs of individual product lines. In the scope of the enterprise as a whole, excess capacity must be understood and accounted for, but charging it to individual products is misleading and inaccurate.” (Huntzinger, P. 179)

17. An Example of a Value Stream Map (Source: Mike Rother, Rother and Company; Michigan Manufacturing Technology Center presentation)

22. The Extended Enterprise Tier 1 Tier 1 Tier 1 T2 T2 T2 T2 T2 T2 T2 T2 T2 T3 T3 T3 T3 T3 T3 T3 T3 T3 T3 T3 T3 T3 T3 T3 OEM Customer Retailer Web Site Warehouse Dealer Distributor Direct Customer Customer Customer Supply Chain Producer Distribution End Markets

29. The Toyota Product Development System

31. Key Elements of the TPDS Toyota Product Development System Functional Managers As Teachers Reward for Technical Competence Pull Scheduling System Standardization Through Checklists and Design Standards Knowledge Capture and Re-use Set-Based Concurrent Engineering Visual Management of the Development Process